Everything About Social Security Benefits Will Change in 2025 – 3 Changes That Will Affect Retirees’ Income

In April 2024, over 50 million retirees were receiving Social Security benefits, which are often their primary source of income. According to a Gallup poll, 88% of retirees rely on Social Security to some extent, with 60% stating it is their “primary source” of income. Given this dependence, it is essential for retirees and soon-to-be beneficiaries to stay informed about changes to the program.

A recent survey by the Nationwide Retirement Institute reveals that many Americans are unaware of several basic components of Social Security. Here are three major changes that will affect retirees’ income in 2025.

COLA

One significant change for 2025 is the cost-of-living adjustment (COLA) to Social Security benefits. A Nationwide Retirement Institute survey found that 70% of respondents mistakenly believed Social Security is not protected against inflation. In reality, Social Security benefits receive an annual COLA to preserve purchasing power. This adjustment is based on changes in a subset of the Consumer Price Index (CPI) during the third quarter of the previous year (July through September).

The Social Security Administration (SSA) will not announce the official 2025 COLA until mid-October when the September CPI numbers are released. However, the Senior Citizen League estimates a 2.7% increase for 2025, based on current consumer price patterns. This projection could be revised upward if inflation remains higher than expected. With a 2.7% COLA, the average monthly payment for retirees would increase by approximately $51, bringing it to $1,967.

Increased Taxes

Another change is the increase in the maximum taxable earnings limit, which affects how much Social Security tax workers pay. According to Nationwide, 74% of respondents incorrectly believed that workers pay Social Security taxes on all their income. In reality, there is a cap on the amount of earnings subject to Social Security payroll taxes. For 2024, this cap is $168,600, meaning any earnings above this amount are exempt from Social Security taxes.

Each year, the taxable earnings limit is adjusted based on changes in the national average wage index. For 2025, the Social Security Board of Trustees predicts the limit will rise to $174,900. Consequently, workers earning above this threshold will see an increase in their Social Security taxes by up to $391. With a tax rate of 6.2%, an employee earning more than $174,900 will have $10,844 withheld from their paychecks in 2025, up from $10,453 in 2024.

Benefit Withholding

Lastly, retirees who continue to work while receiving Social Security benefits may see more of their benefits withheld in 2025. Social Security can temporarily withhold benefits for those under full retirement age if their earnings exceed certain exempt amounts. For 2024, the lower and upper earnings limits are $22,320 and $59,520, respectively. Beneficiaries under full retirement age will have $1 in benefits withheld for every $2 earned above the lower limit and $1 withheld for every $3 earned above the upper limit.

For 2025, the Social Security Board of Trustees projects the retirement earnings test exemptions will rise to $23,280 for the lower limit and $61,800 for the upper limit. This adjustment allows beneficiaries under full retirement age to earn more without having as much of their benefits withheld.

Social Security benefits are a vital source of income for millions of retirees. Knowing the changes in COLA, tax rates, and benefit withholding can help retirees better plan for their financial future. As 2025 approaches, staying informed about these adjustments is crucial for ensuring that retirees can maximize their benefits and maintain their standard of living.

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